Wage cuts ‘will eat into spending power’

Workers will feel the impact of wage cuts as their spending power will be hit hard, it has been said.

Andrew Goodwin, senior economic advisor to the Ernst & Young ITEM Club, has voiced his opinion on the threat of salary reductions coupled with the latest inflation figures.

Earlier this week, the Office for National Statistics (ONS) revealed that the consumer price index rose from 3.7 per cent in December 2010 to four per cent the following month.

Mr Goodwin said the fact that earnings are behind the level of inflation will be why “consumers are feeling the pinch at the moment”.

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He noted that workers have become used to having salary increases of between one and two per cent every year, which means that the real wage cuts are “eating into consumers’ spending power”.

This comes after the ONS reported yesterday (February 16th 2011) that the average earnings growth including bonuses dropped in December 2010 from the previous month from 2.1 per cent to 1.8 per cent.

Posted by Hayley Edwards